Jagdeep Bachher took ESG as a category or box to check and expanded it into an organizational
mindset for the University of California. The environmental, social, and governance consequences
and risks an investment presents are fundamentally factored into all investment assessments.

“Organizationally, you can have a function
that is ESG sustainability, but what we did was
to basically make it part and parcel of the entire
entity,” Bachher told CIO.

In November, the University of Californiais set to formalize this mindset and include ESGcriteria as a fundamental consideration in itsinvestor policy statement. Along with fiduciaryresponsibility, maximizing returns, and mini-mizing risks, “We’re adding a fourth objective,which says incorporate ESG risk factors withequal weighting as to other things we evaluate inour investment decision-making,” Bachher said.“That would make us one of the very few—lessthan a handful—of institutional investors in theworld that has gone that far.”But understanding the risks ESG presents isalready central.

Bachher points to utility companies to illustrate how ESG plays into fundamental investment
analysis. Utilities are popular among asset owners
for their yield-generating capacity. The prospect
of income can keep many investors from turning
a blind eye to their energy source. “Some investors just say ‘I’m just going to invest in these things
because it checks the boxes. I don’t care how dirty
it is… because it’s a good asset,’” he said.

But determining the sustainability of thepower source—whether because of technolog-ical disruption, or shifting social attitudes—is aintegral part of the investment process for Bachher.While coal is still dominant in many emergingeconomies, “in places like America, we may notnecessarily want to invest in a coal plant,” Bachhersaid. “So, when you look at either a bond that’sissued or the stock of one of these companies, oreven a private investment as an infrastructureasset, it’s a real issue.”Researching and funding technology solu-tions to address climate is another innovativestrategy the University of California uses toaddress ESG. It’s the only institutional investorthat is a signatory to Bill Gates’ BreakthroughEnergy Coalition, whose mission is to accelerateclean energy solutions; and it frequently invests intechnology of all stages and venture capital fundsfor renewable energy.

The inspiration for not thinking about ESG
separately and stitching it into the organizational fabric came from former vice president and
high-profile environmental advocate Al Gore.

“I was taking the traditional approach threeyears ago,” Bachher said. “I had posted a job thatwas called director of sustainability.”But in informal conversations, Gore convincedhim the approach would backfire. “He basicallysaid, ‘Look, if you make this a policing functionand you have a separate entity, people will alwaysbe worried. You just have to satisfy the ESG depart-ment,’” Bachher said. “But if you made this whateverybody is doing and includes in their framework,then it has a chance of being much more sustainablein the longer term.”The result? “I ripped up the director ofsustainability job description, and I said we’re justall basically going to live this.” —Vishesh Kumar

Church Commissioners
for England

Tom Joy

Heron Foundation
Clara Miller

McKnight Foundation
Rick Scott

Rockefeller Brothers
Funds

Geraldine (Gerry) Watson

University of CaliforniaOffice of the RegentsJagdeep Bachher, Chief Investment Officer (Oakland, California)